proposal to review and develop compensation...
TRANSCRIPT
Proposal to Review and Develop Compensation Programs For Redfin
22 February 2014
Compensation Venture Group, Inc. 206.780.5547
www.compensationventuregroup.com [email protected]
Our Proposal
22 February 2014
Compensation Venture Group appreciates the opportunity to submit this proposal to provide consulting services related to the compensation programs of Redfin. This document reflects the information discussed in our initial conversation and provides detailed information on our ideas for structuring a process that delivers immediate value.
For this important and complex project, we can provide unparalleled experience, expertise, and value through:
§ Our Principal Consultant who is globally-recognized as a thought leader and innovator in executive, equity, and incentive compensation and is a Certified Equity Professional (CEP) with advanced technical expertise in equity compensation
§ Extensive experience developing compensation programs for pre-transaction companies
§ Our experience working with companies crossing multiple industry and occupational categories like Redfin’s “real estate agents and software engineers”
§ CVG’s unique proprietary tools and processes for the compensation design in private companies
§ Transparent project budgeting and billing processes.
We look forward to the opportunity to work with you on this project.
Regards, Fred Whittlesey Office 206-780-5547 Principal Consultant Mobile 206-388-9068
Contents
Ø Project Objectives
Ø Project Worksteps and Issues
Ø About Compensation Venture Group
Ø Professional Arrangements
Ø Project Plan
Ø Appendix: Professional Biography
Project Objectives
Ø Redfin is seeking an independent review of the Compensation program for key employees to determine:
§ Appropriate dilution levels from employee stock plans, considering investor and adviser criteria for public companies and competitive market norms
§ Total compensation program design – base salary, cash incentives, and stock-based compensation – to position Redfin for its anticipated public offering
Ø Our consulting assistance to Redfin would include the following elements:
§ Discussions to determine program type, design features, financial constraints, and implementation considerations
§ Share usage projection to model the equity pool requirements as the Company grows and obtains additional financing
§ Development of a peer group of public companies of similar size, maturity, and industry sector to serve as a reference point for convergence with public company norms, and referencing equity compensation practices in those companies
§ Revising the plan document and/or individual participant agreements as needed to accommodate support changes in program design
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Project Worksteps
Ø We anticipate completing the following worksteps to achieve the project objectives: § Initial project meeting to confirm detailed project worksteps, and identify and discuss
strategic, financial, and behavioral objectives of the overall program design
§ Review Company information (to be requested in advance initial meeting)
§ Consolidation of employee data and Company financial performance history and projections into compensation model for cost and plan design modeling
§ Development of peer group criteria and a proposed peer group – which may be defined to include companies recently completing an IPO
§ Analysis of equity compensation practices in the peer companies
§ Development of a share usage model for the Company
§ Modeling of financial and compensation scenarios
§ Progress meetings to review findings and preliminary recommendations
§ Development of program outlines and summaries for review and approval
§ Presentation to the Compensation Committee
§ Additional meetings as needed for revision, review, and approval
Ø These are incorporated in the Project Plan contained in this Proposal
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Project Worksteps (continued)
Ø At the completion of those worksteps, there may be additional work required including:
§ Additional iterations of plan outlines and compensation models
§ Progress meeting(s) or call(s) with Redfin management
§ Progress meeting(s) or call(s) with other professional advisers (legal, audit, tax)
§ Development of employee communication materials
Ø These have not been anticipated in our initial Project Plan but would be subject to the same professional fees arrangement established in this Proposal
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Issues to Be Addressed in Compensation Review
Equity Compensation Ø Consideration of Omnibus Equity Plan to allow for multiple types of awards, including:
§ Ample share reserve for pre- and post-offering awards § Projected share usage model to determine share reserve § Plan for timing of grants pre- and post-offering § Addressing pre-offering pricing issues
Ø Review of retention “glue” of outstanding and projected equity grants
§ Post-lockup unvested balances
Ø Consideration of an Employee Stock Purchase Plan (Section 423 ESPP)
Ø Determination of investor and adviser reference points for program design
§ Current investors § Targeted investor segments in public offering § Advisory firms
q Institutional Shareholder Services (ISS) q Governance Metrics International (GMI) q Glass Lewis
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Issues to Be Addressed in Compensation Review (continued)
Executive and Director Compensation Ø Understanding shareholder dynamics in the current corporate governance environment
§ Say-on-pay § Equity plan design constraints § Executive compensation design norms
Ø Conforming compensation programs to public company norms
§ Impact on cost structure of all-employee adjustments § Balancing Company strategy and philosophy with external investor/adviser views
Ø Board of Director compensation
§ Cash retainers and/or meeting fees § Committee Chair and member compensation § Lead Director compensation § Equity compensation – stock options and/or stock units
Ø Compensation Discussion and Analysis content (For S-1 and annual proxy statement)
§ Compensation philosophy § Peer group and other market references § Supplemental tables
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About Compensation Venture Group
Ø CVG helps boards of directors and management teams address Board, executive, and employee pay issues and related underlying policies and systems
§ Clients include publicly-traded companies, private corporations, controlled corporations, LLCs, joint ventures, foreign subsidiaries, partnerships, and not-for-profit organizations
Ø We serve clients along the West Coast innovation corridor with client concentrations in Seattle, Silicon Valley, and Orange County
Ø Our Principal Consultant is a featured speaker at numerous industry conferences around the world each year
Ø Founded in 2006, Compensation Venture Group, Inc. (CVG) converted to a Washington Social Purpose Corporation in 2014
§ SPCs provide a framework for maximizing financial returns while promoting positive impact on the company’s employees, community, and environment
Ø CVG is a Certified B Corporation
§ B Corps are certified by the nonprofit B Lab to meet rigorous standards of social and environmental performance, accountability, and transparency
Ø CVG is an investor in Fledge LLC, the Seattle-based conscious company incubator and accelerator and RealizeImpact, the related not-for-profit investment fund
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Our Unique Value Proposition
Compensation Venture Group is a unique compensation advisory resource
Ø Independent § Free from conflict of interest with audit, tax, executive search, or benefits services § Able to work with both the Board and executive management without conflict
Ø Dedicated senior, globally-recognized Principal Consultant § Junior staff used as resources, not substitutes
Ø Focus on small and mid-sized companies § Solutions for entrepreneurial cultures, not imposition of Fortune 500 practices
Ø Solutions focus § Innovative business-based solutions, not repetition of previous client work
Ø Extensive experience with Boards of Directors and their Compensation Committees § Ability to get diverse members to arrive at solutions to complex issues
Ø Emphasis on knowledge transfer to the client organization § No “black box” methods - training, education, and models provided
Ø Performance-based relationships with organizations providing supporting expertise § Focus on the issue at hand, not cross-selling and account management
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Consulting Services
CVG offers comprehensive solutions for compensation and performance management program evaluation, design, implementation and communication needs including:
§ Performance Program Design § Objective-Setting § Performance Measurement § Performance Evaluation § Management Training and Coaching § Human Resource Strategic Planning § Human Resource Diagnostic Reviews § Organization Analysis § Employee Business Education § Employee Communications
§ Compensation Strategy Facilitation § Total Compensation Structures § Executive Compensation § Director Compensation § Short-Term Incentive Plan Design § Long-Term Incentive Plan Design § Employment Agreements § Sales Compensation Plans § Transition Agreements § Internal Staff Technical Education
Compensation Performance Management
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Our Clients
Ø Our client base composed primarily of companies that are:
§ Under $5 billion in market capitalization (or private equivalent)
§ With a founder, family, or early-stage investor/management team involved in the governance of the company
§ Undergoing change in ownership, management, strategy, and/or maturity
§ Requiring creative and innovative solutions to pay issues
§ Interested in independent expertise with a focus on integrity and sustainability
§ Receptive to financially-driven perspectives on compensation issues
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Representative Client Experience
Pre-IPO Experience
AHI Healthcare Systems (IPO, acquired by FPA Medical) Downey, CA BevMo! (private)* Concord, CA Claria (closed) Redwood City, CA Cytokinetics (CYTK) South San Francisco, CA Dames & Moore (IPO, acquired by URS) Los Angeles, CA Fisker Automotive (acquired by Wanxiang Group) Anaheim, CA Fluidigm (FLDM) South San Francisco, CA Healthcare Partners (acquired by DaVita) Torrance, CA Kyphon (IPO, acquired by Medtronic) Sunnyvale, CA Newgistics (acquired by Littlejohn) Austin, TX Walmart.com (private) Brisbane, CA WildTangent (private) Redmond, CA
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*Current Client
Representative Client Experience
Local Clients
Bill & Melinda Gates Foundation Seattle Clearwire (acquired by Sprint) Bellevue Coinstar Bellevue Corbis Seattle Federal Home Loan Bank Seattle Group Health Cooperative* Seattle Laird Norton Wealth Management/Laird Norton Company* Seattle Nextel Partners (acquired by Sprint) Kirkland RealNetworks Seattle Ridgeline Energy (acquired by Atlantic Power) Seattle Teragren Bamboo* Bainbridge Island Vulcan Seattle Watson Furniture Group* Poulsbo Western Wireless (acquired by Alltel) Bellevue WRQ (merged with Attachmate) Seattle
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Representative Client Experience
Online Commerce and Technology
Akamai Technologies Cambridge, MA Captaris (acquired by OpenText) Bellevue, WA Design Within Reach San Francisco, CA Expedia Bellevue, WA Move.com (formerly HomeStore) Santa Barbara, CA Nintendo of America Redmond, WA NeoPets (acquired by Viacom) Pasadena, CA Roxio (formerly Napster, acquired by Sonic Solutions) Santa Clara, CA Watchguard Technologies (taken private) Seattle, WA
Carson Companies Carson, CA Century Housing Corporation Los Angeles, CA Essex Property Trust Palo Alto, CA HON Development Company Laguna Hills, CA Impact HUB* Seattle, WA SheaHomes San Diego San Diego, CA SheaHomes San Jose San Jose, CA SVB Financial Group/Silicon Valley Bank* Santa Clara, CA West Marine Watsonville, CA
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Real Estate, Financial Services, Retail
*Current Client
Professional Arrangements
Ø Our consulting services are billed on an hourly basis, in quarter hour increments, at rates based on the level of work performed. We ensure that we have each element of work performed at the least costly rate without compromising quality. The hourly rates shown in the Project Plan are inclusive and no additional administrative fee is added.
Ø We charge for all time spent on an assignment including project planning, telephone conversations, research and analysis, meeting preparation, and project meetings. We do not charge for time spent traveling to and from meetings.
Ø If the time required is less than that budgeted on any phase of any project, total fees will be less. We will not exceed the budgeted amount without discussing with you any requested changes in project objectives, scope, or approach and the impact on the project budget.
Ø In addition to professional fees, we are reimbursed for the out-of-pocket expenses incurred as a direct result of the assignment, including communication, travel, and document production costs. Detailed expense charges are included in billing statements. We expect these to be de minimis for this project.
Ø We require an initial retainer of 30% of the budgeted fees, subject to a minimum of $5,000, prior to commencement of the project with the balance to be invoiced monthly as the project progresses. We request payment of our invoices within fifteen (15) days.
Ø The Project Plan shown on the following page presents what we believe is a thorough process for achieving the stated objectives and the necessary time commitment.
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Project Plan
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Professional Arrangements: Next Steps
Ø Upon receiving notification that CVG has been selected for this project we will issue a brief Engagement Letter, incorporating by reference the information in the Proposal, and an invoice for the Initial Retainer
Ø We are prepared to commence the initial steps of the engagement immediately upon receiving the signed Engagement Letter and Initial Retainer payment
Ø In our initial meeting we will review the Project Plan, targeted completion dates, and deliverables and adjust the Plan as needed to ensure we have a working project management document
Ø If at any point during the project there is a delay in the availability of data, information, and/or Redfin management and staff needed for discussion, review, and/or approval we will revise and issue and updated Project Plan with completion dates reflecting the delay
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Fred Whittlesey, Principal Consultant Fred is a globally-recognized expert in allocating an organization’s financial capital to its human capital. He has designed innovative performance-based cash and equity compensation plans, and supporting performance management programs, for hundreds of companies in a variety of industries with a primary focus on growth and entrepreneurial companies. Each year he is invited to provide dozens of presentations, webinars, articles, and book chapters for multiple professional organizations and business corporations. Background Fred has over 25 years of experience as a compensation consultant with firms including Towers Perrin, Mercer, KPMG, Radford, and Buck Consultants. He has held the corporate positions of Director, Global Compensation for Broadcom Corporation and Amazon.com. He was a course developer and instructor for WorldatWork’s Finance & Accounting, Executive Compensation, and Advanced Executive Compensation professional certification courses in both classroom and webinar formats for over ten years. He is a co-founder and past Board member of the not-for-profit Global Equity Organization (GEO), a Founding Member of the National Association of Stock Plan Professionals (NASPP), past Chair of the Advisory Board of the Certified Equity Professional (CEP) Institute at Santa Clara University, and a current Executive Compensation Task Force member for CompensationStandards.com. He also sits on the Advisory Board of GlobalShares plc (Cork, Ireland). Fred received his MBA with honors from UCLA, concentrating in human resource management and marketing. He graduated Phi Beta Kappa and Magna Cum Laude from San Diego State University with a BA in industrial/organizational psychology. He also has earned the Certified Equity Professional (CEP) designation from Santa Clara University and the Certified Executive Compensation Professional (CECP) and Certified Compensation Professional (CCP) designations from WorldatWork.
continued…
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Fred Whittlesey, Principal Consultant (continued)
Authored Publications If I’d Only Know That: Common Mistakes in Equity Compensation and What to Do About Them (contributing author) National Center for Employee Ownership July 2011 The Governance Ups and Downs of Performance Plans* GEOnomics 2011 Performance Awards (contributing author) Certified Equity Professional Institute Return on Investment of Compensation Expenditures* The Compensation Handbook (McGraw Hill) Understanding Executive Pay Equity: Ratios and Rationality WorldatWork Journal Third Quarter 2010 How Much is “Market” Driving Global Equity Compensation Trends?* GEOnomics 2010 Behavioral Economics of Equity Compensation* GEOnomics 2009 The Corporate Governance Implications of Option Backdating Corporate Governance Advisor August 2006 Option Expensing: I Still Don’t See Any Elephants WorldatWork Workspan April 2003 The New Equity Compensation Map WorldatWork Journal Spring 2003 Changing Behavior in a Changing Workplace Compensation and Benefits Management Winter 1999
Designing Short-Term Cash Incentive Plans: Getting the Basics Right* Incentive Compensation in Employee Ownership Companies National Center for Employee Ownership Employee Ownership in Initial Public Offerings* The Stock Options Book National Center for Employee Ownership
Stock Compensation in the Biotech Industry San Diego Business Journal: Focus on Biotechnology July 1997 The Future of Human Resources Management ACA Journal American Compensation Association Winter 1997 Building a Workforce of Owners Leading Companies Foundation for Enterprise Development October 1996 CEO Herb Kelleher Discusses Southwest Airlines’ People Culture (Interview) ACA Journal American Compensation Association Winter 1995 Lessons in Employee Ownership: The Airline Industry ACA Journal American Compensation Association Winter 1995 Expanding the Phantom Stock Concept Compensation and Benefits Review November-December 1994 Ten Common Compensation Mistakes Compensation and Benefits Review July-August 1993
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*Book Chapter 20
Fred Whittlesey, Principal Consultant (continued)
Professional Education and Instruction Roles
Advanced Executive Compensation Professional Certification Course WorldatWork Elements of Executive Compensation Professional Certification Course WorldatWork Principles of Finance and Accounting Professional Certification Course WorldatWork
Financial Aspects of HR Management Certification Course in Human Resources Management UCLA Extension Principles of Performance Management Managing for the 21st Century UCLA Extension Compensation Strategy as a Sustainable Competitive Advantage Small Business Planning UCLA Anderson Graduate School of Management
Presentations (examples of more than 250 presentations)
The Real Meaning of ROI for HR Professionals WorldatWork Annual Conference 2006 After the Fall: What Really Happened with Option Expensing National Association of Stock Plan Professionals Annual Conference 2005 The New Share Plan Metrics Global Equity Organization Annual Conference 2005 New Equity Plan Ideas: Making Them Work E-Trade Business Solutions Annual Conference 2005 Expanding the Phantom Stock Concept American Compensation Association Annual International Conference
What Motivates and Demotivates People? American Compensation Association Strategies for a Changing Workforce Conference Employee Ownership and Initial Public Offerings American Compensation Association Annual Conference Practical Issues in Plan Design National Center for Employee Ownership Stock Options Workshop Gainsharing, Profit Sharing, and Short-Term Incentives National Center for Employee Ownership Annual Conference Designing Stock Plans Bay Area Compensation Association Chapter Meeting Building a Workforce of Owners Foundation for Enterprise Development Breakfast Seminar Series
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Ann Fosburgh, Consultant
Ann has over 20 years of experience in human resources management in entrepreneurial technology and financial services companies with a special focus on and passion in compensation, benefits, HRIS and accounting. She has proven success in designing and delivering customized business solutions by aligning HR rewards strategies to business objectives. She has successfully led global payroll and HR systems implementations, design and development of incentive compensation plans, contract renewal for health and welfare benefits as well as company acquisitions and integration activities. She has worked to design and scale domestic and global companies in rapidly changing environments. She has excellent business acumen and is a focused and effective communicator. Clients consider her a trusted and insightful business partner, coach, and mentor. Currently she is supporting the Human Resources function for a California-based international financial services organization as well as for an international medical device manufacturer in the Seattle area. Prior to her current consulting role, Ann held senior HR positions within various financial services, healthcare and technology companies. She was Senior Director of Compensation & Benefits at Providence Health & Services; Director of Global Total Rewards at Russell Investments; and Director of Human Resources at Communication Technologies in Washington, DC. Prior to that Ann was Director, Worldwide Compensation, Benefits and HRIS at Corbis. During her years at Corbis she oversaw global compensation, company benefits and all human resources systems for 1,500 employees in 9 countries. She worked closely with the President of Corbis and the senior acquisition team as they purchased and assimilated 12 competitive companies from around the world. Ann is on the Board of Directors of the Northwest Compensation and Rewards Forum and active in volunteering at local non-profit organizations. She holds a Bachelor of Science degree from Northern Illinois University, and the Certified Compensation Professional (CCP) and Professional in Human Resources (PHR) certifications.
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Anthea Kuah, Associate Consultant
Anthea is experienced in both consulting and corporate roles spanning the public and private sectors. She has experience managing, designing and implementing rewards structures in the semiconductor, electronics, utilities, insurance and trading industries. She has consulted with managers and business partners on compensation projects for organizations in Taiwan, China, Hong Kong and Singapore and held corporate compensation positions in Singapore. Prior to working in the US, Anthea also worked for compensation consulting firms in Asia, where she managed compensation surveys. Anthea also worked for Premera as a compensation consultant. Anthea was previously a Senior Analyst for PayScale.com, a venture-funded compensation database firm in Seattle. There she was responsible for complex system queries, data analysis, and research supporting the Chief Compensation Officer’s conference speeches, webcasts, and written content. Anthea holds a Bachelor of Business Administration with majors in Human Resources Management and Marketing from Simon Fraser University in Canada. She has achieved the Certified Compensation Professional (CCP) and Global Remuneration Professional (GRP) certifications from WorldatWork and is currently pursing the Certified Labor Relations Professional (CLRP) designation. Anthea is fluent in English, Mandarin, Cantonese and Taiwanese.
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